Cross Trade

Key Highlights

• A cross trade is a transaction where buy and sell orders for the same security are matched and executed internally by a broker or portfolio manager, without the trade being recorded on a public exchange.

• This practice is typically conducted between accounts managed by the same entity and is subject to strict regulatory oversight to ensure fairness and transparency.

What is Cross Trade?

A cross trade is a transaction where buy and sell orders for the same security are matched and executed internally by a broker or portfolio manager, without the trade being recorded on a public exchange. This practice is typically conducted between accounts managed by the same entity and is subject to strict regulatory oversight to ensure fairness and transparency.

Why Do Cross Trades Matter?

Cross trades can save money and time for investors, but they come with strict rules to prevent any funny business. They’re a way to quietly and efficiently move assets between accounts managed by the same firm, but only if done properly.

Key Features of Cross Trades

How They Work?

• Internal Matching: A broker lines up a buyer and seller from their own client accounts for the same asset, executing the trade in-house.

• Off-Exchange: These trades don’t show up on public exchange order books, so other market players don’t see them.

Rules and Regulations

• Restrictions: Most major exchanges don’t allow cross trades because they can hide what’s happening in the market.

• Permitted Situations: They’re allowed if both accounts are managed by the same firm, the price matches the current market value, and everything is properly reported.

• Regulatory Compliance: Rules like Rule 17a-7 of the Investment Company Act of 1940 ensure fair pricing, no extra fees, and detailed record-keeping to keep things transparent.